BCB Bancorp, Inc. — Third Quarter 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; balance-sheet comparisons are with December 31, 2016. Figures are unaudited and in U.S. dollars. BCB is a community banking company operating primarily through BCB Community Bank in New Jersey and Staten Island, focused on commercial real estate, multifamily and other lending, deposits, and related banking services.
Financial performance and position
- Third quarter: Net income was $3.2 million, up 68.1% year over year; income available to common shareholders was $3.1 million, or $0.25 per basic and diluted share, versus $0.15 a year earlier. Net interest income rose 14.5% to $15.6 million.
- Nine months: Net income was $8.6 million, up 56.3%; common earnings were $8.2 million, or $0.71 basic and $0.70 diluted per share. Net interest income increased 11.3% to $45.2 million.
- Margins: Net interest margin was 3.50% in Q3 versus 3.22% in Q3 2016, and 3.46% for the first nine months versus 3.26%. Management attributed the improvement mainly to repayment of higher-cost FHLB advances. Average loan yields declined year over year amid competition and downward repricing of variable-rate loans.
- Revenue and expenses: Q3 noninterest income was $1.6 million, including $222,000 in OREO sale gains and $97,000 in securities gains; noninterest expense declined 8.5% to $11.3 million. Nine-month noninterest income increased 27.2% to $6.0 million, including $1.57 million of OREO sale gains and $237,000 from a legal settlement. Nine-month noninterest expense declined 3.4% to $35.0 million, despite $1.0 million in plaintiff class counsel fees and litigation expenses.
- Assets and lending: Total assets grew 9.6% to $1.872 billion. Net loans rose 9.0% to $1.619 billion; growth was concentrated in commercial and multifamily real estate loans, up $114.4 million, and residential one-to-four-family loans, up $30.7 million. Commercial and multifamily loans were $1.232 billion of $1.640 billion in gross loans.
- Credit quality: Nonperforming loans were $17.0 million, or 1.03% of gross loans, versus $15.7 million, or 1.04%, at year-end. The allowance for loan losses was $18.4 million, 1.12% of gross loans, versus $17.2 million, 1.14%, at year-end. The company recorded a $511,000 Q3 provision, compared with a $301,000 credit in Q3 2016; nine-month provision was $1.8 million versus a $75,000 credit. Nine-month net charge-offs were $546,000, versus net recoveries of $377,000 in 2016.
- Liquidity, funding and debt: Cash and cash equivalents increased to $97.6 million from $65.0 million. Deposits rose 11.1% to $1.546 billion, including $35.9 million of listing-service CDs and $42.1 million of brokered CDs. Long-term debt was $138.0 million; the $20.0 million of year-end short-term debt was repaid. The company reported $142.1 million of total borrowings and an average borrowing rate of 1.71% at quarter-end, and access to up to $87.0 million of additional FHLB funding. Time deposits of $390.9 million mature within one year.
- Cash flow: For the nine months, operating activities provided $15.3 million, investing activities used $135.7 million, and financing activities provided $153.0 million; cash increased $32.6 million.
- Capital: Stockholders’ equity increased to $177.6 million, primarily reflecting a $42.8 million net common-stock offering, $9.5 million of Series D preferred issuance and retained earnings, partly offset by $11.7 million of Series A and B preferred redemptions. The Bank exceeded regulatory minimums and was well-capitalized; its total risk-based capital ratio was 13.67%, common equity Tier 1 was 12.42%, and Tier 1 leverage was 9.97%.
Material changes, outlook and risks
- The September public offering issued 3,715,102 common shares at $12.25 per share, including partial exercise of the underwriters’ over-allotment option; net proceeds were approximately $42.8 million. The added shares increased the common share count.
- BCB agreed to acquire IA Bancorp and merge Indus-American Bank into BCB Community Bank. Consideration is structured approximately 80% in BCB common stock and 20% cash, subject to agreement terms and adjustments. Completion was anticipated in Q4 2017 or Q1 2018, subject to regulatory and shareholder approvals; completion was not assured.
- Management said it intended to grow assets at a measured pace consistent with capital and business opportunities, maintain liquidity for loan funding, and pursue securities offering competitive returns. The filing provides no formal earnings or financial guidance.
- Risks include credit exposure, particularly in commercial real estate and multifamily lending; interest-rate, collateral-value and funding-cost changes; deposit competition and flows; economic and housing-market conditions; regulatory changes; and merger timing and integration. In the company’s modeled sensitivity, a 100-basis-point rate increase reduced estimated net portfolio value 8.92%; management cautioned that the model is assumption-dependent and is not a precise forecast.
- The company believed its loan-loss allowance was adequate, but estimates may differ from actual losses and regulators may require additional provisions. It reported $30.8 million of troubled debt restructurings at September 30, 2017. The ongoing insurance recovery suit against Progressive follows a court ruling granting BCB partial summary judgment and denying Progressive’s summary-judgment motion; recovery remained unresolved. BCB had paid the $1.0 million class counsel fee award by July 31, 2017.
- Management identified no change in critical accounting policies, reported disclosure controls as effective, and stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the IA Bancorp transaction received all required approvals, closed, and met its stated consideration and timing terms.
- Loan growth and concentration trends, delinquencies, nonperforming loans, TDR performance, charge-offs, and the adequacy of the allowance as the portfolio expands.
- Deposit retention and pricing, including the maturity and renewal behavior of $390.9 million in time deposits and reliance on listing-service and brokered CDs.
- Whether margin gains persist as loan yields face competition and deposit costs may rise; review actual results against the filing’s interest-rate sensitivity assumptions.
- The outcome and potential value of the Progressive insurance recovery suit, and the effects of the common-stock issuance and preferred-stock changes on per-share results and capital.